Friday, March 1, 2013

Markets waffle as federal budget cuts begin

Dow was up 21, decliners ahead of advancers 4-3 & NAZ added 1.  The Financial Index rose 1 to the 237s.  The MLP index slipped a fraction to under 431 & the REIT index lost a fraction in the 279s.  Junk bond funds inched higher & Treasuries gained, bringing lower Treasury yields.  Oil slid back towards 90 & gold was flattish.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLJ13.NYM....Crude Oil Apr 13...90.68 ...Down 1.37   (1.5%)

GCH13.CMX...Gold Mar 13.....1,583.70 ...Up 6.00   (0.4%)

Spending Cuts Signal Austere Future for U.S. Domestic Programs


Automatic cuts set to take effect today will pinch gov functions as the country enters a more austere era that could push discretionary spending as a share of the economy to its lowest level in at least 50 years.  Politiicos are locked in partisan feuds about across-the-board cuts in national security, education & anti- poverty programs rather than structural changes to retirees’ benefits & the tax code.  Discretionary spending (excluding Medicare & Social Security) will fall to 5.3% of GDP by 2023, the lowest level since at least 1962, according to the Brookings Institution.  In part because of political deadlock, the US hasn’t resorted to austerity measures like those in Greece, Spain & the UK.  Even if congress agrees to replace some of the cuts, politicos will be under pressure to adhere to the lower spending level that kicks in today.  House Reps are uniting behind a proposal to keep the gov operating after Mar 27 that takes sequestration into account, reducing the spending cap to about $974B from the current level of $1.043T.  The deficit debate drones on.

Photo:   Bloomberg

The pres met with congressional leaders as no one predicted a breakthrough to avert federal spending cuts which have just started.  All leaders attended the meeting.  Dems & Reps are in a standoff over how to replace the cuts totaling $1.2T over 9 years, $85B of which would occur in the remaining 7 months of this fiscal year.  Reps reject the call by Dems for higher taxes on top earners to replace part of the spending reductions.  “Middle-class families can’t keep paying the price for dysfunction in Washington,” Obama said.  The pres has until 11:59PM to issue the order officially putting the cuts into effect.  “How much more money do we want to steal from the American people to fund more government?” Boehner said yesterday.  “I’m for no more.”  The White House meeting followed the Senate’s rejection yesterday of a pair of partisan proposals to replace the spending reductions.  No additional congressional action is planned before the start of the cuts, to be split between defense & non-defense spending.  Neither chamber was in session today & legislative business isn’t scheduled until Mon.  As the mess starts, the biggies take the weekend off!

Congress Leaders Meet With Obama as Cuts to Start

A woman walks through a shopping mall in San Francisco, California January 5, 2012. REUTERS/Robert Galbraith

Photo:   Yahoo

Consumer spending in the US was tepid in Jan as higher taxes squeezed household incomes, but vigor in the manufacturing sector last month suggested economic growth picked after stalling in late 2012.  The Commerce Dept said consumer spending increased 0.2% in Jan as Americans spent more on utilities after a cold snap during the month.  The rise was in line with expectations & followed a 0.1% gain in Dec.  Consumer spending accounts for about 70% of US economic activity & when adjusted for inflation, it gained 0.1% after a similar increase in Dec.  The expiration at the end of 2012 of a 2% payroll tax cut & the increase in tax rates for wealthy Americans, depressed spending in Jan & the impact is expected to be larger in Feb spending as households adjust to smaller paychecks, which are also being strained by rising gasoline prices.  Consumer spending is expected to slow down sharply from the Q4 2.1% annual pace & restrain growth.

Consumer Spending up, Income Posts Largest Drop in 20 Years Reuters

Stocks are wandering, trying to figure where to go.  Once again, when Dow gets over 14K it stalls out.  The budget mess has the promise of being with us for a VERY LONG TIME.  The Reps were wounded in last fall's election & are anxious to show they will stick to their guns by not allowing more tax increases.  The Dems have just as tough an attitude aimed at taxing the "rich" & no meaningful spending cuts.  The politicos in DC have had over a year to get their act together & that has produced this chaos.  Then divided DC has to approve an increase in the federal debt ceiling & funding for the balance off the fiscal year (by month's end).  Meanwhile Dow has hardly been disturbed.  Maybe the goings on in DC will get more attention in Mar.

Dow Jones Industrials

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